The Great Fictitious Entity

In his great little book The Law, the 19th-century French libertarian legislator Frederic Bastiat wrote one of the most profound insights on welfare-state socialism ever penned: “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

Bastiat was one of the first libertarian writers I came across when I discovered libertarianism. At the time, I was a liberal (i.e., progressive). I genuinely believed that it was the role of government to help people, especially the poor and needy.

For the life of me, I couldn’t understand why anyone would object to government’s giving money or other assistance to poor people. it was the government’s money, after all. Why shouldn’t an entity do whatever it wants with its own money. If a private company decided to give some of its money to the poor, how could anyone object, given that it’s the company’s own money?

Bastiat helped me to see reality.

The government is not like a private company. A private company gets its money by selling goods and services that people are willing to purchase on a voluntary basis. The government gets its money by force, through taxation. It seizes a portion of people’s income to fund its operations. If people resist, the government initiates force against them.

Thus, government has no money of its own to distribute to people. In order to hand out money to the poor or anyone else, it must first seize the money from people through taxation.

Let’s assume that the federal government is going to give every American taxpayer a gift of $5,000. How does it do that? We know that it doesn’t have money of its own. It must first seize the money through taxation and then distribute it to everyone.

So, the government seizes $6,000 from every American taxpayer and then sends every American taxpayer a gift of $5,000. Why the $1,000 difference? Because the government has to pay its employees for performing this service.The bureaucrats at the Internal Revenue Service and the Department of Health and Human Services don’t work for free.

My hunch is that most people aren’t going to be real happy with this gift scheme. Yes, they are receiving a free gift of $5,000 but they are also having to pay $6,000 in taxes. I think most people would see that that’s not a good deal for them.

But everyone still wants that free $5,000. They just don’t want the government to seize the $6,000 from them. Each person wants the government to seize the money from everyone else and then give him the free $5,000 gift.

Enter Bastiat: “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

In other words, in a welfare-state society, where the government is handing out free money to people, everyone is trying to get his hands on the free money while, at the same time, doing everything he can to protect his own income and assets from being seized. That’s what taking advantage of all those tax deductions and tax loopholes are all about. “Give me the free money but just take it from other people, not from me.”

That’s one of the big reasons why a welfare-state system is so destructive. It is a system of perpetual conflict. Everyone is waging war against everyone else by using the state to plunder and loot his neighbor while, at the same time, doing his best to keep his own money from being plundered and looted.

Of course, there are two other ways that government can get its hands on money that it can then redistribute in the form of free gifts. It can borrow money from people and then use it to hand out to people. But the effect is still the same because when those debts come due, the government is going to have to tax people to pay back the debt. So, the problem of who to steal from remains even if it is delayed.

Another way is by simply printing the free money to hand out. But that inflation of the money supply itself constitutes a tax on people through the reduced value of their money. If people’s income buys 10 percent less than it did before the printing spree got going, that is the same as a 10 percent tax on their incomes.

A society in which everyone is using government to steal from everyone is one that will ultimately collapse from within, especially because of the moral rot at the center of such a system. As the biblical saying goes, a house divided against itself will not stand.

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education.
He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at
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